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The UK biofuels industry is to invest £250m in a new ethanol production plant on Teesside.

Ensus, the concern building the facility, has secured the funds from private equity groups the Carlyle Group and Riverstone Holdings. There is also £150m of debt finance.

Building work is to commence this spring at the Wilton International site near Middlesbrough and full production should reach 400 million litres a year in 2009.

The UK will introduce a requirement for five per cent bio-sourced content in all transport fuel from 2010, guaranteeing a need for at least a billion litres of ethanol annually. It will also mandate a 2.5 per cent biofuel requirement to commence in 2008, which is projected to reduce overall carbon emissions by 500,000 tonnes per year.

So far, Ensus will have few on-shore rivals for this market, although British Sugar is to open a smaller 70 million litre plant.

The Ensus facility is to produce its ethanol from wheat, traditionally in surplus across the European Union. The idea is that the wheat has absorbed carbon from the atmosphere as it grows, so using it in place of fossil fuels will reduce environmental damage.

However, biofuels have occasionally run into controversy. It has been suggested that a big takeup might drive up the price of food and require excessive use of land. Some critics have also pointed out that producing ethanol requires substantial amounts of power, which at the moment is largely generated by burning fossil fuels.

Biofuel advocates have countered with the suggestion that in future the production plants and associated transport could also burn ethanol. In this scenario, fields of crops would effectively function as immense self-built solar-power generators, storing the sun's energy in portable ethanol form without any carbon footprint whatsoever.

Whether there is enough land and biomass available in the world to power the human race's transport needs and feed it too is open to question. Researchers at Purdue University in the USA say there probably isn't, using current ethanol-production methods. They reckon if the biofuels industry carries on as it is, running all American transport (cars, trains, planes, the lot) "would require a land area 25 per cent to 55 per cent the size of the United States." The USA isn't all productive land in this sense, and people need to eat too, so this might not be viable.

But the Purdue researchers reckon they've got the solution, though it may not make traditional biofuel lovers happy.

Rakesh Agrawal, Purdue's Winthrop E Stone distinguished professor of chemical engineering, says his team has found a method which can get three times as much fuel out of a given amount of biomass. This would permit the USA to power its transport from just six to 10 per cent of its own area, perhaps using stuff which at the moment is considered agricultural waste.

The catch which will have some ethanol-heads up in arms is that Agrawal's method requires the addition of hydrogen during the ethanol production process. Hydrogen is, of course, the hated rival of ethanol for green motor fuel of the future. Worse, it requires substantial amounts of electricity to be produced cleanly. Agrawal, like the normal hydrogen lobbyists, speculates that this juice would come from a carbon-free source such as solar or nuclear power.

Purdue University considers the process worth patenting, at any rate, and research such as this does suggest that the shape of biofuel infrastructure may be in flux.

Furthermore, the UK market is driven by possibly changeable legislation, and the availability of corn is dependent on controversial EU farm subsidies.

The resultant lack of certainty around biofuels may have been a factor in Ensus' decision not to list on the Aim stock market and go with private equity instead. But Ensus CEO Alwyn Hughes says not. "We see huge advantages in private equity," he told the London Financial Times. ®